A Surplus Of Optimism

October 17, 2000

George W. Bush and Al Gore have the remarkable luxury of arguing over what to do with trillions of dollars in surplus cash. What a change from eight years ago, when the country was facing budget deficits that hovered around $300 billion a year.

Unfortunately, Bush and Gore seem to have forgotten how the nation got to this position. It came through fiscal discipline--and the longest peacetime economic expansion the U.S. has ever seen. These two candidates have a lot to say about taxes, a lot to say about spending. What seems to be missing is the discipline.

Projections are that the government will collect $4.6 trillion more in tax receipts than it spends over the next 10 years. Those are, of course, projections, not gospel. Just five years ago forecasters were warning that today the government would still be taking in $300 billion or so less each year than it spent.

So, the numbers need to be taken with a whole shaker of salt. The projected surpluses are based on low inflation and anticipated high tax revenues. They depend on there being no major war or catastrophe that would upset today's good times. They depend on consumers continuing to spend money on houses and cars and clothes and cell phones. They depend on the flimsiest assumption of all, that Congress will be disciplined in its spending. For the last two years, discretionary spending by Congress has been double the rate of inflation. While the presidential candidates have been out talking, Congress has been working toward a 2001 budget that once again shatters its own spending caps.

The American public seems to have a better handle on this than the presidential campaigns. Voters have greeted both Bush's tax cuts and Gore's "investments" (read: larger government) proposals with no huge groundswell of support.

The appeal of Bush's plan is simplicity: He would cut marginal tax rates, reduce the marriage penalty, eliminate the estate tax and allow people who don't itemize their taxes to take deductions for contributions to charity. You know you will pay less in taxes.

While Gore's tax plan is more modest, it is also more complicated. It requires taxpayers to live by Al Gore's priorities to receive a reduction in taxes. If you stay at home or pay for an after-school program, you might qualify for tax cuts. Then again, tax cuts might slip away as your income rises, according to the Gore plan.

Apparently Gore hasn't gotten the message that people are frustrated and befuddled by the U.S. tax code. They want it to be simpler. Gore makes it even more convoluted by adding or changing more than two dozen provisions of the tax code.

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If Bush's eyes grow large at the vision of tax cuts, Gore gets carried away with spending much of that new money. According to an analysis by The Concord Coalition, Gore's spending plans would cost $795 billion, nearly three times what Bush has committed to new or expanded programs. Other estimates peg Gore's spending far higher than that.

The Gore campaign hasn't just set out its spending, it has predicted with uncanny certainty the social benefit. The Gore campaign promises that his tax and spending plans will reduce poverty below 10 percent, raise college attendance to 75 percent and allow 70 percent of American families to experience the joy of home ownership. They really do make such specific promises, a remarkable show of hubris, and of faith in social engineering by government.

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Bush and Gore do wisely agree on some fundamentals that would have seemed unimaginable just a few years ago. Don't squander money earmarked--but not yet needed for--Social Security benefits. Gore would reserve that $2.4 trillion to pay down debt, Bush would apply it to debt reduction and Social Security reform.

It may just be too much to expect a presidential candidate not to seize the opportunity presented by such optimistic projections for the U.S. Treasury. But the final word has to be discipline.

The publicly held portion of the federal debt stands at $3.4 trillion. The nation pays more to service the debt than to fund Medicare. Reduce the debt and you reduce the interest payments on it, freeing up money that can be dedicated to other purposes. Reducing the federal debt in a disciplined fashion is not as sexy as tax cuts or spending bursts. It is just sound policy.